Editorial: Getting the hydro math right

If there is one thing that hits people in the pocket where it hurts, it is energy price increases — and it is no surprise therefore that consumers have been up in arms lately, particularly over rising hydro rates.

If there is one thing that hits people in the pocket where it hurts, it is energy price increases — and it is no surprise therefore that consumers have been up in arms lately, particularly over rising hydro rates. On top of price hikes this winter, the average current monthly residential bill of $137 is set to rise $167 in two years, $177 in five years and keep going up to $210 in about 20 years. All this at a time most workers are facing wage freezes.

With such impending increases, any break for consumers is good news, and reports that the debt retirement charge hydro users have been paying for about 14 years, is to be eliminated couldn’t have come soon enough. The average consumer pays about $5.60 a month toward the debt, and while it is not a huge amount, and the elimination of the debt is about three years away, every little bit counts.

News of the plan to end the very unpopular charge was contained in a leaked document on the Liberals’ spring budget plan, and while few details are available, the minority government had signalled in earlier public documents and statements that it plans to eliminate the charge between 2015 and 2018. The government’s 10 per cent gas rebate is expected to end next year and the Liberals would like nothing better than to take the charge off at the very time the rebates are ending, to balance each other. The big question however, is whether the elimination of the debt charge will create a revenue hole that has to be filled with a new tax or made-up charge.

Energy expert Tom Adams is skeptical about the government’s plan, saying there has been so many “shell games” in electricity accounting since the 1999 Ontario Hydro restructuring that whatever the government says has to be taken with a pinch of salt.

“The whole subject is a swamp,” he says.

The portion of the debt consumers are required to pay off, now stands at $3.9 billion, and it is a perfect example of what happens when government policy goes awry. It all started when the Conservative government of Mike Harris tried to privatize Ontario Hydro. Turning what was a public monopoly over to the private sector was good policy, but problems in the utility industry at the time made things difficult, and the plan was not fully implemented. Ontario Hydro ended up being broken into Hydro One and Ontario Power Generation and assorted municipal utilities. The Ontario Electricity Financial Corporation was then created to handle the debt and other liabilities of the former hydro monopoly.

When it was all said and done, the government was faced with a $30 billion debt. The new companies were assigned a share of the debt based on the value of their assets, leaving $19.4 billion in an unfunded liability — what is often referred to as the stranded debt. Of this amount, a portion was to be paid for through payments-in-lieu of taxes, profits and other charges by OPG, Hydro One and municipal utilities. The remainder, about $7.8 billion, was termed residual stranded debt to be paid off by hydro users, and it is this bill consumers have been paying through the debt retirement charge. And it has gone from $7.8 billion to $3.9 billion.

Progressive Conservative leader Tim Hudak has been arguing that the $7.8 billion has been paid off, but Ontario finance ministry officials say Hudak hasn’t got the math right. What was $7.8 billion in 2000 is clearly not the same amount today, taking into account interest rates, which amount to $1.6 billion a year on the entire debt.

Government officials say there is no shell game involved in the retirement of the residual stranded debt, because the law says that when the stranded debt, which is about $11 billion now, is fully offset by the present value of payment-in-lieu of taxes, gross revenue charge and other payments by Ontario Hydro’s successor companies, the payments end. They believe that will happen between 2015 and 2018, and consumers will get a clean break.

But what if the projected revenues from the successor companies fall short? Officials say that will have no bearing on the elimination of the residual stranded debt, which follows a different repayment track. There is no way consumers would be asked to pay for the other debt.

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